SQE1 contract damages: what you must know and how it is tested

SQE1 damages for breach of contract questions test the measure of damages, remoteness under Hadley v Baxendale and the duty to mitigate. Always ask what the claimant would have had if the contract had been performed. Read it with the wider Contract Law guide.

SubjectContract Law (FLK1)

Key lawHadley v Baxendale; Cavendish v Makdessi

Question typeSingle best answer, five options

The rules to apply

The aim is to put the claimant in the position they would have been in if the contract had been performed (expectation loss). If that cannot be quantified, the claimant may claim wasted expenditure instead (reliance loss, Anglia Television v Reed). Where a defect can be cured, damages may be the cost of cure, but only if that is reasonable; otherwise it is the difference in value, and in some cases a modest sum for loss of amenity (Ruxley Electronics v Forsyth).

Remoteness (Hadley v Baxendale). Loss is recoverable if it arises naturally from the breach (first limb) or was in the reasonable contemplation of both parties, when the contract was made, as a probable result of breach (second limb). Abnormal loss falls within the second limb only if the defendant knew the special circumstances when they contracted. The degree of likelihood needed is that the loss was not unlikely (The Heron II). The court may also ask whether the defendant assumed responsibility for the type of loss (The Achilleas).

Mitigation. The claimant must take reasonable steps to reduce the loss and cannot recover loss they could reasonably have avoided. They can recover the cost of reasonable attempts to mitigate, even if unsuccessful. Damages for distress are generally not available, unless an important object of the contract was pleasure, relaxation or peace of mind (Farley v Skinner). A term fixing damages on breach is a penalty unless it protects a legitimate interest and is not out of all proportion to it (Cavendish Square v Makdessi). Damages are usually assessed at the date of breach.

Traps examiners use

Using the tort test of reasonable foreseeability for a contract claim.
Judging remoteness at the date of breach. It is the date of the contract.
Allowing loss from special circumstances that the defendant was never told about.
Forgetting that the claimant need not take extraordinary steps to mitigate.
Awarding damages for disappointment in an ordinary commercial contract.

Worked question 1

Orla agrees to deliver a printing press to Bright Ltd by 1 June. Bright does not tell Orla that it has a one-off contract worth £80,000 that depends on the press. Orla delivers late and Bright loses the one-off contract. Which is correct?

A. Bright recovers the £80,000, because the loss was caused by the breach.
B. Bright recovers the £80,000, because lost profits are always recoverable.
C. Bright cannot recover the £80,000 as Orla did not know the special circumstances, but may claim the ordinary loss that arises naturally from late delivery.
D. Bright recovers nothing, because it did not mitigate.
E. Bright recovers the £80,000 only if Orla acted deliberately.

Answer: C. The lost one-off contract falls under the second limb of Hadley v Baxendale. It is recoverable only if both parties reasonably contemplated it when the contract was made, and Orla did not know. Ordinary loss, such as the normal use of the press, falls under the first limb. A mixes up causation with remoteness.

Worked question 2

Mo agrees to buy 10 tonnes of steel from Fenn Ltd at £800 a tonne, delivery on 1 May. Fenn does not deliver. The same steel could be bought on 1 May at £900 a tonne, but Mo waits and buys on 20 May at £1,100 a tonne. What can Mo recover from Fenn for the price difference?

A. £3,000, the difference between the contract price and the price Mo actually paid.
B. Nothing, because Mo bought the steel in the end.
C. £9,000, the market price on 1 May.
D. £1,000, the difference between the contract price and the market price when Mo could reasonably have bought substitute steel.
E. £11,000, the price he actually paid.

Answer: D. Mo must mitigate. He could reasonably have bought at £900 on 1 May, so his recoverable loss is £100 a tonne, £1,000. The extra £2,000 arose from his own delay. A ignores mitigation. B is wrong because a substitute purchase does not remove the loss, and C and E confuse price with loss.

Checklist before you move on

What would performance have given the claimant?
Expectation or reliance loss?
First limb or second limb of Hadley v Baxendale, judged at contract date?
Did the claimant take reasonable steps to mitigate?
Is a damages clause a penalty (legitimate interest, proportion)?
Any claim for distress, or only for loss of amenity?

Test yourself on more original questions in our SQE1 practice questions.

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Questions

What are the two limbs of Hadley v Baxendale?

Loss arising naturally from the breach, and loss that both parties reasonably contemplated at the time of contracting as a probable result of breach, including loss from special circumstances they knew about.

What does the duty to mitigate require?

Reasonable steps to reduce loss. The claimant cannot recover loss that reasonable steps would have avoided, but need not take unreasonable or risky steps.

Are damages for distress available for breach of contract?

Generally not, unless an important object of the contract was to give pleasure, relaxation or peace of mind, as in Farley v Skinner.

Sources: SRA: SQE1 Assessment Specification (from 1 September 2026); Judiciary: civil judgments; National Archives: Find Case Law. Checked 10 November 2026.